Phillips 66 Partners Reports Second-Quarter 2019 Earnings

Phillips 66 Partners LP (NYSE: PSXP) announces second-quarter 2019 earnings of $233 million, or $1.15 per diluted common unit. Cash from operations was $276 million, and distributable cash flow was $254 million. Adjusted EBITDA was $319 million in the second quarter, compared with $281 million in the prior quarter.

“This quarter we had record earnings and advanced our major projects,” said Greg Garland, Phillips 66 Partners’ chairman and CEO. “Solid performance across our portfolio contributed to this quarter’s results. We secured project financing for Gray Oak Pipeline and progressed construction toward a fourth-quarter startup. In addition, we announced the C2G Pipeline project and completed the Lake Charles products pipeline.”

“This morning we announced an agreement to eliminate our general partner’s IDRs,” Garland continued. “This transaction reinforces PSXP as a premier MLP with an improved cost of capital and a simplified structure, along with its strong financial position and growth opportunities. Looking forward, we remain committed to delivering a competitive and growing distribution while balancing strong coverage and leverage ratios. Our portfolio of organic projects, as well as drop-down opportunities from Phillips 66, position us well for delivering continued growth.”

On July 17, 2019, the general partner’s board of directors declared a second-quarter 2019 cash distribution of $0.855 per common unit, a 14% increase over the second-quarter 2018 cash distribution. The Partnership has increased its distribution per common unit every quarter since its initial public offering in July 2013.

Financial Results

Phillips 66 Partners’ second-quarter 2019 earnings were $233 million, compared with $198 million in the first quarter of 2019. The Partnership reported adjusted EBITDA of $319 million in the second quarter, compared with $281 million in the prior quarter. The improvements are due to increased volumes on the Explorer, Bakken and Bayou Bridge joint venture pipelines, as well as increased volumes on wholly owned pipelines, driven by higher utilization at refineries operated by Phillips 66.

Liquidity, Capital Expenditures and Investments

As of June 30, 2019, total debt outstanding was $3.3 billion. The Partnership had $130 million in cash and cash equivalents and $749 million available under its revolving credit facility.

The Partnership’s total capital spending for the quarter was $114 million, which included $12 million of maintenance capital. Expansion capital of $102 million included spend on the Clemens Caverns expansion, the new isomerization unit at the Phillips 66 Lake Charles Refinery, the C2G Pipeline and the Lake Charles products pipeline, as well as investments in the South Texas Gateway Terminal and the Bayou Bridge Pipeline.

Strategic Update

The Partnership is constructing the 900,000 barrels per day (BPD) Gray Oak Pipeline, which is anticipated to be in service by the end of 2019. The pipeline will provide crude oil transportation from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners has a 42.25% ownership in the pipeline. The Gray Oak Pipeline joint venture has secured $1.3 billion of project financing.

The Gray Oak Pipeline will connect to multiple terminals in Corpus Christi, including the South Texas Gateway Terminal currently being constructed by Buckeye Partners, L.P. The marine export terminal will have two deepwater docks, with initial storage capacity of approximately 7 million barrels and up to 800,000 BPD of throughput capacity. Phillips 66 Partners owns a 25% interest in the terminal, which is expected to start up by mid-2020.

The Partnership is increasing storage capacity at Clemens Caverns from 9 million barrels to 15 million barrels in connection with the Phillips 66 project to add natural gas liquid (NGL) fractionation capacity at the Sweeny Hub. The caverns expansion is expected to be completed in the fourth quarter of 2020.

Phillips 66 Partners is also constructing the C2G Pipeline, a 16 inch ethane pipeline that will connect Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi. The project is backed by long-term commitments and is expected to be completed in 2021.

During the quarter, Phillips 66 Partners completed construction of the Lake Charles products pipeline that connects storage in Lake Charles to its Clifton Ridge Marine Terminal. This connection is expected to increase product export capability by up to 50,000 BPD from the Phillips 66 Lake Charles Refinery. The pipeline is backed by a long-term agreement that includes a minimum volume commitment.

The 25,000 BPD isomerization unit at the Phillips 66 Lake Charles Refinery was completed in July and is expected to ramp up to full production in the third quarter. The project increases production of higher-octane gasoline blend components. The project includes a long-term agreement with Phillips 66 for processing services with a minimum volume commitment.

The Sweeny to Pasadena Pipeline expansion project will add 80,000 BPD of pipeline capacity, providing additional naphtha offtake from the Sweeny fractionators. In addition, product storage capacity will be increased by 300,000 barrels at the Pasadena Terminal, and new connectivity will be added to third-party terminals. The project is expected to be completed in the second quarter of 2020 and will be backed by long-term agreements that include minimum volume commitments.

Investor Webcast

Members of Phillips 66 Partners executive management will host a webcast today at 2 p.m. EDT to discuss the Partnership’s second-quarter performance. To listen to the conference call and view related presentation materials, go to www.phillips66partners.com/events. For detailed supplemental information, go to www.phillips66partners.com/reports.

About Phillips 66 Partners

Headquartered in Houston, Phillips 66 Partners is a growth-oriented master limited partnership formed by Phillips 66 to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum products and natural gas liquids pipelines, terminals and other midstream assets. For more information, visit www.phillips66partners.com.

^{CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995}

^{This news release contains certain forward-looking statements as defined under the federal securities laws. Words and phrases such as “is anticipated,” “is estimated,” “is expected,” “is planned,” “is scheduled,” “is targeted,” “believes,” “continues,” “intends,” “will,” “would,” “objectives,” “goals,” “projects,” “efforts,” “strategies” and similar expressions are used to identify such forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements relating to Phillips 66 Partners’ operations (including joint venture operations) are based on management’s expectations, estimates and projections about the company, its interests and the energy industry in general on the date this news release was prepared. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Factors that could cause actual results or events to differ materially from those described in the forward-looking statements include the continued ability of Phillips 66 to satisfy its obligations under our commercial and other agreements; the volume of crude oil, refined petroleum products and NGL we or our joint ventures transport, fractionate, terminal and store; the tariff rates with respect to volumes that we transport through our regulated assets, which rates are subject to review and possible adjustment by federal and state regulators; fluctuations in the prices for crude oil, refined petroleum products and NGL; liabilities associated with the risks and operational hazards inherent in transporting, fractionating, terminaling and storing crude oil, refined petroleum products and NGL; potential liability from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations; the failure to complete construction of announced and future capital projects in a timely manner and any cost overruns associated with such projects; and other economic, business, competitive and/or regulatory factors affecting Phillips 66 Partners’ businesses generally as set forth in our filings with the Securities and Exchange Commission. Phillips 66 Partners is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.}

^{Use of Non-GAAP Financial Information—This news release includes the terms “EBITDA,” “adjusted EBITDA,” “distributable cash flow,” “coverage ratio,” and “adjusted capital spending.” These are non-GAAP financial measures. EBITDA and adjusted EBITDA are included to help facilitate comparisons of operating performance of the Partnership with other companies in our industry. EBITDA and distributable cash flow help facilitate an assessment of our ability to generate sufficient cash flow to make distributions to our partners. We believe that the presentation of EBITDA, adjusted EBITDA and distributable cash flow provides useful information to investors in assessing our financial condition and results of operations. Our coverage ratio is calculated as distributable cash flow divided by total cash distributions and is included to help indicate the Partnership’s ability to pay cash distributions from current earnings. Additionally, adjusted capital spending is a non-GAAP financial measure that demonstrates Phillips 66 Partners' net share of capital spending. The GAAP performance measure most directly comparable to EBITDA and adjusted EBITDA is net income. The GAAP liquidity measure most comparable to EBITDA and distributable cash flow is net cash provided by operating activities. The GAAP financial measure most comparable to our coverage ratio is calculated as net cash provided by operating activities divided by total cash distributions. The GAAP financial measure most comparable to adjusted capital spending is capital expenditures and investments. These non-GAAP financial measures should not be considered as alternatives to GAAP net income or net cash provided by operating activities. They have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. They should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Additionally, because EBITDA, adjusted EBITDA, distributable cash flow, coverage ratio and adjusted capital spending may be defined differently by other companies in our industry, our definition of EBITDA, adjusted EBITDA, distributable cash flow, coverage ratio and adjusted capital spending may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.}

^{Reconciliations of current quarter EBITDA, adjusted EBITDA and distributable cash flow to net income and net cash provided by operating activities, as well as adjusted capital spending to capital expenditures and investments are included in this release. Additionally, the disaggregation of adjusted capital spending between expansion and maintenance is not a distinction recognized under GAAP. We provide such disaggregation because our partnership agreement requires that we treat expansion and maintenance capital differently for certain surplus determinations. Further, we generally fund expansion capital spending with both operating and financing cash flows and fund maintenance capital spending with operating cash flows. We believe this is an important distinction in our liquidity profile.}

^{References to EBITDA refer to earnings before interest, income taxes, depreciation and amortization.}

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